Business Rates Debate

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Simon Danczuk

Main Page: Simon Danczuk (Independent - Rochdale)

Business Rates

Simon Danczuk Excerpts
Tuesday 30th October 2012

(12 years, 1 month ago)

Westminster Hall
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Simon Danczuk Portrait Simon Danczuk (Rochdale) (Lab)
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It is a delight to serve under your chairmanship, Mr Caton.

Since I became Rochdale’s Member of Parliament, the local business community has raised business rates with me time and again, which is one reason why I initiated this debate. The other reason is that I believe the Government’s handling of this particular tax is doing real damage to economic growth. It is also fair to say that, in many ways, the Government’s handling of business rates mirrors the way they have mishandled other broader economic issues and failed to manage Government change.

I will start by providing some broad examples. The Government have talked tough on red tape, but their handling of business rates is making life a misery for thousands of businesses. The Government claim to be interested in helping the high street, but they ignore every retail voice that raises concerns about business rates. The Government talk about transparency and accountability, but they are postponing business rates revaluation without consulting business first. This weekend, through the Deputy Prime Minister, the Government talked about rebalancing our economy away from the City’s square mile to the rest of the country through more city deals, but they are now postponing business rates revaluation, which will have a major adverse effect on businesses in every region except the south-east.

The Conservatives have often peddled the myth that they are on the side of business. Well, if there is one policy that demolishes that myth—most businesses now know this—it is business rates. The Government are playing politics with business rates, which is hurting the high street and the wider business community.

On the recent business rate increases, the Government said in their recent circular:

“As business rates are linked to inflation, there will be no real terms increase in rates”.

On 2 July, the then Minister for Housing and Local Government, the right hon. Member for Welwyn Hatfield (Grant Shapps), said that business rates are having

“only an inflation-level rise”.—[Official Report, 2 July 2012; Vol. 547, c. 567.]

Do the Government think businesses believe that rhetoric? Does the Under-Secretary of State for Communities and Local Government, the hon. Member for Great Yarmouth (Brandon Lewis) think that businesses are oblivious to the fact that last year’s increase was based on an exceptional September, when RPI was at 5.6%? Does the Minister think businesses are not aware that that major rise in business rates gave his Government a windfall in revenue? In 2011, the increase was 4.6%, a cumulative rise of more than £0.5 billion over those two years. Businesses see this Government as disingenuous when they talk about business rates increasing only by inflation.

Although the Government have had a windfall in business rates, including much from the retail sector, they have dedicated little to helping the high street. From the £350 million extra income last year, the Government spent just £10 million on the various Portas programmes. Latest figures show that more than 30 high street chain-store shops are closing every day. Empty shop numbers have gone up, year-on-year sales are down, footfall is down and insolvencies are up. That is the picture of the high street under this Government, and their mismanagement of business rates is a major factor in that.

Every week the newspapers are full of stories of businesses citing high business rates as their reason for pulling out of an area or being forced to close. The chief executive of Britain’s third largest shoe retailer, Kurt Geiger, recently said:

“Business rates actually are what are killing UK retail”.

Retail has accounted for 20% of our gross domestic product, and it accounts for 11% of UK jobs and is the largest private sector employer. Retail is often the first rung on the ladder into employment for young people, but the ladder is now being pulled away by the Government.

We are all aware of the Government’s Portas review, and we all had high hopes for what it might achieve. But we now know the Portas review was just window-dressing. It is no wonder that Mary Portas is now telling industry conferences that she fears her review may have been a “Government PR stunt.” One of Mary’s recommendations in her 28-point plan presented to Government was:

“Government should consider whether business rates can better support small businesses and independent retailers.”

Those words must have gone in one ear of Government and straight out the other, because they have been flatly ignored. Straight after the recommendation, the Government introduced the biggest business rates increase in 20 years.

The Minister said last month on “ConservativeHome”:

“I want to make myself obsolete.”

I do not have a problem with the Minister making himself obsolete—indeed, I welcome it—but I do have a problem with him and his Government making the high street obsolete.

Because of the inflation-busting business rate increases, it is no wonder the Valuation Office Agency has a total of 241,700 outstanding appeals on business rates for the fourth quarter of 2011-12. In that quarter, the VOA managed to clear just 11,960 appeals. Many businesses in Rochdale have testified to the slowness of that process.

Kate Green Portrait Kate Green (Stretford and Urmston) (Lab)
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I congratulate my hon. Friend on securing this debate and on all the work he does on this subject, which is valued and noticed by the House. He is right to highlight the problems with the Valuation Office Agency, and CVS, a major business rates specialist located in my constituency, has expressed its view that the delays are compounded by cuts in staff at Her Majesty’s Revenue and Customs. Does he agree that that is part of the problem?

Simon Danczuk Portrait Simon Danczuk
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I do agree with that statement. I am also familiar with the excellent work of CVS in championing appeals for businesses across the country. The lack of resources in the VOA is a concern that I will address in a moment.

It is clear that businesses are having to wait years for the VOA to get round to processing their appeal. By my calculations, the VOA will now take five years to clear its 2010 revaluation appeals. That is just not good enough. In that time a lot of businesses will go bust, having had to pay unfairly high taxes. Setting the taxes at a fairer level could make all the difference and allow those businesses to stay in business.

The question now has to be asked of the Minister: is the Valuation Office Agency fit for purpose? The VOA pointed out in its 2011-12 annual report that it had closed nine offices and that complaints had increased due to the length of time that business rates appeals take. The truth is that the Government have starved the VOA of resources, that appeals are taking far too long, and that as a consequence many businesses are paying too much in taxes, which is putting many businesses out of business.

Kate Green Portrait Kate Green
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Does my hon. Friend agree that it is a tremendous irony that delays in the VOA, which is one part of HMRC, are causing another part of HMRC to put businesses at risk of bankruptcy by trying to recover tax that businesses cannot afford to pay because their rates have not been properly assessed?

Simon Danczuk Portrait Simon Danczuk
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That is absolutely right. The failure to run the appeals process successfully is damaging businesses, particularly small and medium-sized enterprises.

As if that were not bad enough, out of the blue, with no notice given, the Government then told us that they had decided to stop the 2015 business rates revaluation and carry it out two years later. There was no consultation with business, no detailed discussion of how the policy might affect economic growth, no consideration of how the policy might prevent the economy from being rebalanced along geographical lines. The British Property Federation’s chief executive says that the move

“embeds injustices in the current system”,

and the British Council of Shopping Centres says that it will have a “very negative impact” on the high street. Those organisations are big figures on the distressed retail property taskforce, which the Government are backing, yet Ministers will not listen to them.

Mark Spencer Portrait Mr Mark Spencer (Sherwood) (Con)
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I congratulate the hon. Gentleman on securing this important debate. One issue on high streets in my constituency is that landlords are having to pay business rates on empty properties and therefore do not have the cash to invest in those properties in order to attract new tenants. The previous Government introduced that system. Does he acknowledge that it might have been a mistake?

Simon Danczuk Portrait Simon Danczuk
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That is an interesting point about empty property taxes. I will not address it in my speech, but it undoubtedly deserves examination and should be investigated further to see what impact it has on businesses.

Let me make it clear: I have yet to hear a single retail voice supporting the Government’s proposal to cancel next year’s revaluation. The Minister seems to think that he is right and everyone else is wrong. If he can identify somebody who supports the revaluation, I would be interested to hear who it is.

To put it bluntly, the business rates revaluation postponement is no way to do government. The decision to postpone next year’s revaluation of business rates has compounded the sense of injustice already felt by retailers and other businesses. To add insult to injury, the Minister has defended the policy by saying on radio that it is simply like being locked into a fixed-rate mortgage. What he did not tell radio listeners is that it is like a fixed-rate mortgage with an interest rate set at more than 40% for many customers. The Government must think that businesses are daft. Current business rates are based on rents that were set close to the property boom peak in 2008. Since then, property prices have fallen by up to 40% in many parts of the north and elsewhere in the country.

Nicholas Dakin Portrait Nic Dakin (Scunthorpe) (Lab)
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I congratulate my hon. Friend on securing this timely and important debate. Does he not agree with the Association of Convenience Stores that what is needed now is a full consultation with business about the right approach going forward and a radical way of looking at business rates, instead of Government ploughing forward in a furrow of their own?

Simon Danczuk Portrait Simon Danczuk
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I agree with the ACS, which does excellent work. The lack of consultation on the revaluation is a massive part of the problem in which the Government now find themselves. In fact, the property agents Colliers have called the decision

“nothing short of a scandal”

and have accused the Government of trying to

“pull the wool over the eyes of business.”

The policy will mean that many businesses will continue to pay more business rates than they should, and it will disproportionately hit regions outside the south-east. I cannot put it better than Richard Farr of Sanderson Weatherall chartered surveyors, who said in Newcastle’s The Journal:

“Those in lucrative locations such as London and the south-east, where rental values have increased, will benefit from the move, whilst hard-hit retailers in northern cities and elsewhere will continue to be suffocated by being charged business rates based on pre-recession values.”

The Minister attempted to defend his policy by saying in The Daily Telegraph this week:

“revaluations are revenue-neutral overall...Suspending the revaluation will not earn the Government a penny”.

What he failed to tell business is that by suspending the revaluation now, he need not increase business rates in the south-east and reduce them elsewhere. Like other examples such as the local government settlement, the new homes bonus and public health funding, business rates have been adjusted to serve a political purpose. If next year’s business rates revaluation were to go ahead as planned, new rates would come into force in April 2015, a month away from the general election. Rates would undoubtedly increase in the south-east and decrease significantly across the north and elsewhere to reflect the adjustment in property values. That is not the kind of news that the Government want to present to heartland supporters a month away from elections.

To top it all off, the Government are attempting to defend their policy further by telling journalists that the move to postpone next year’s revaluation will provide stability for businesses, and that they want to avoid the volatility of significant changes to business rates. The Government do not appear to understand the system of transitional relief, which is designed to reduce the impact of any significant changes in the rateable value.

Marcus Jones Portrait Mr Marcus Jones (Nuneaton) (Con)
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Much of the hon. Gentleman’s argument seems to be predicated on the north-south divide. However, there are town centres throughout the country—in the south-east, the south-west, the north, the midlands and across the piece—that are struggling. Does he not agree that the issue is not just a north-south issue but relates to the whole country?

Simon Danczuk Portrait Simon Danczuk
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I agree. Not only the north but other areas outside the south-east will be adversely affected.

The Government also boast of offering small business rate relief, a policy introduced by the Labour Government. They say that they have given local authorities the power to reduce business rates under clause 69 of the Localism Act 2011, but what they never make clear is that the local authority must pay for any reduction in business rates. In order to cut business rates, a council must cut back on care for the elderly or disabled services. What a fantastic choice to offer local authorities. In Greater Manchester, an area with some of the highest numbers of empty shops in the country, freedom of information requests have shown that not one local authority is using clause 69 of the Localism Act 2011 to reduce business rates. It is a shocking indictment of a toothless Government policy that has made no impact whatever since it was introduced in April and is a completely ineffective tool against high street closures.

To conclude, the Government are trying to postpone a business rates revaluation to protect the south-east while being dangerously complacent about the consequences of businesses elsewhere having to pay until 2017 excessively and unfairly high rates that have lost touch with rental values. The Government are using the desperate euphemism of “stability” when what is really meant is political expediency, and they are boasting about localism powers to reduce business rates that councils are not using and cannot use due to massive budget cuts.

I say clearly to the Minister that businesses do not want an out-of-touch Government telling them that they will have to pay unfair taxes regardless. They want someone on their side who is prepared to fight for a system that takes a fair proportion of taxes and gives businesses the breathing space and support to grow and lead a proper, sustainable recovery.

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Brandon Lewis Portrait The Parliamentary Under-Secretary of State for Communities and Local Government (Brandon Lewis)
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It is a pleasure to respond to the debate under your chairmanship, Mr Caton. I join other hon. Members in congratulating the hon. Member for Rochdale (Simon Danczuk) on securing the debate, which is indeed on an important subject. I thank him for drawing it to the attention of the Chamber, and I thank all hon. Members who have spoken so passionately on the issue. It is useful for me to be able to set out the Government’s position on business rates, and on revaluation in particular.

First, let me correct the fundamental misunderstanding that some people have about revaluations. They do not change the amount of revenue raised through business rates. Revaluations simply redistribute the rates burden among ratepayers. Therefore, what revaluations ensure is that the share of the national rates bill paid by any one business reflects changes over time in the value of its property relative to others. That means—this is the important point—it is likely that very many businesses whose rents have fallen, but by less than the average, would have seen a tax increase from 2015. The detailed work of reassessing all 1.7 million properties has not yet started, but the estimates prepared by the Valuation Office Agency suggest that 800,000 premises would have seen a real-terms increase in their rates in a 2015 revaluation. Sectors facing big hikes would have included retail as well as petrol stations, hotels and pubs. My hon. Friend the Member for Nuneaton (Mr Jones) mentioned pubs; as the Minister responsible for community pubs, I fully appreciate that point.

Let me set out the action that we have taken. To provide certainty and stability to all businesses, the Government intend to postpone the next revaluation from 2015 to 2017. To answer one of the points raised, the date of 2017 is in the Growth and Infrastructure Bill. Thereafter, revaluations will continue to take place every five years. The required legislative changes are in the Growth and Infrastructure Bill.

Simon Danczuk Portrait Simon Danczuk
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If the revaluation took place in 2015, and was not moved to 2017, how many businesses would pay less in business rates?

Brandon Lewis Portrait Brandon Lewis
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I am not sure that I followed the hon. Gentleman’s point. Could he clarify it?

Simon Danczuk Portrait Simon Danczuk
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If the revaluation took place in 2015, as it should, how many businesses would see their business rates reduced?

Brandon Lewis Portrait Brandon Lewis
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As I published yesterday, the Valuation Office Agency’s view is that about 800,000 premises would have seen an increase and about 300,000 a decrease. We are talking about the retail sector, petrol stations, hotels and pubs. Those kinds of business would have been most affected by hikes. Postponing the revaluation—

Simon Danczuk Portrait Simon Danczuk
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Where do the 300,000 businesses in the Government’s figures tend to be based—which regions?

Brandon Lewis Portrait Brandon Lewis
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At the moment, the estimate is done across the country. We are looking at publishing these estimates, but what the Valuation Office Agency can and will publish is a matter for the VOA. We are looking to ensure that that is resolved before the Bill’s Second Reading on Monday.

Postponing the 2015 revaluation in England will avoid local firms and local shops having to face unexpected hikes in their business rate bills during the next five years. As business rates are linked to inflation, there will be no real-terms increase in rates over the period. The reform therefore provides certainty for businesses to plan and invest, supporting local economic growth.

Since the last revaluation, which was based on 2008 valuations, the economy and property market have faced exceptional changes. A revaluation at this point would therefore be likely to result in sharp changes to business rate bills in many parts of the country and in many sectors. Tax stability is vital to businesses that are looking to grow and to help improve the economy. The Government are committed to maintaining up-to-date rate bills through regular five-yearly revaluations, which will resume, as I said, after 2017.

We can look only at estimates for the revaluation in 2015, because the detailed work has not yet started. The estimates have been prepared by the Valuation Office Agency and are based on professional judgments informed by limited rental market evidence up to January 2012. They suggest that many smaller and medium-sized firms would have seen rate increases in 2015. Overall, the estimates suggest, as I have said, that 800,000 premises would have had a real-terms increase in their rates from a 2015 revaluation. The retail sector, some parts of which have criticised our decision to postpone the revaluation, would have faced big hikes in bills in 2015.

--- Later in debate ---
Brandon Lewis Portrait Brandon Lewis
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I will certainly take that point back to the Department. May I highlight that any ratepayers with an outstanding appeal who are in financial hardship or facing enforcement action from a local authority should contact the VOA directly, because it will look at bringing appeals forward in such cases?

Simon Danczuk Portrait Simon Danczuk
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I do not know whether the Minister has ever tried to contact the VOA, but my office certainly has. I speak on behalf of many businesses that find it exceptionally difficult to deal with the VOA. Does he agree that its performance on appeals is completely unacceptable?

Brandon Lewis Portrait Brandon Lewis
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The hon. Gentleman invites me to stray well outside the scope of the debate, but I take his point on board and will take it back to the Department. My offices speak and meet with the VOA regularly, and I will ensure that that matter is considered.

A specific point on out-of-town car parks was raised. The VOA independently assesses all properties, including out-of-town retail premises, for business rates on the same basis—annual rental value. I assure hon. Members that the rateable values reflect the value of car parking in an out-of-town location, to the extent that it is reflected in rents. I know that there is an issue with some councils seeing car parking in town centres as a cash cow; we have made changes to the rules around the transparency of car parking charges, so that residents can understand fully what councils are doing.

Of course, the Government have already taken action on business rates. We have doubled the level of small business rate relief in England for two and a half years, so the higher level of relief will apply throughout the 2012-13 billing year. We estimate that more than 500,000 businesses in England are benefiting, with approximately a third of a million businesses paying no rates. The measure therefore reduces fixed costs for existing and new small businesses, helping them to make the most of opportunities as the economy returns to growth. It is a useful measure. My hon. Friend the Member for Sherwood (Mr Spencer), who is no longer in his place, mentioned empty shops and start-up ventures. It is an interesting point, which I will take back to the Department to look at.

Through the Localism Act 2011, we simplified the process for claiming small business rate relief; waived £175 million of backdated business rates demands levied on businesses, including some in ports; and gave local authorities wide-ranging discretionary powers to grant business rates discounts. We listened to concerns about the RPI increase for 2012-13, and gave businesses the option of spreading the increase over three years.

As has been mentioned, we are also introducing the new business rates retention scheme. We want to give councils every encouragement to drive growth, so that they fully play their part in growing our economy through the planning system and their other levers. The business rates retention proposals represent a fundamental shift in the way that local authorities are funded. They give councils a strong financial incentive to drive local economic growth and to engage with local businesses to develop a positive approach to growth. Subject to the Local Government Finance Bill receiving Royal Assent, we will introduce the business rates retention scheme in April 2013.

We have taken other steps to boost the high street and growth. We have doubled the number of Portas pilots. Following applications by local MPs, over 300 town teams have signed up to become town team partners, and will benefit from a package of support. In March this year, we announced a £10 million high street innovation fund for the top 100 places most affected by the riots, or with the highest empty shop rates. In August, we announced the £1 million future high street X-fund. For those who have not yet applied, its closing date is 6 December.

We will shortly announce the details of a £500,000 fund to help set up business improvement districts. We will continue to support the high street by working with areas to remove barriers that prevent local high streets from prospering. We will publish a further response to Mary Portas’s review in spring 2013, building on the knowledge from the pilots, experiences across the country, and the progress that we have made on many of the other recommendations in the review since last December.

As was mentioned, next week is the Second Reading of the Growth and Infrastructure Bill, which will help the country to compete on the global stage by setting out a comprehensive series of practical reforms to reduce confusing and overlapping red tape that delays and discourages investment, new infrastructure and job creation. Postponing the revaluation until 2015 in England is the right thing to do.

Simon Danczuk Portrait Simon Danczuk
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The Minister’s figures confirm that at least 300,000 businesses will pay more than they should in business rates for two years, from 2015 to 2017. Many businesses will have many more than one premises, so we cannot assume that that is 300,000 shops. Is that the right way to run a tax system?

Brandon Lewis Portrait Brandon Lewis
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The hon. Gentleman omits to point out that 800,000 businesses would have had to pay more, and does not mention the uncertainty that would have been created over the next couple of years while businesses worked through the situation. That is not sensible in the current exceptional economic climate.

We want to provide local firms and local shops, including many of the most disadvantaged, with the certainty that they need to plan, invest and grow. VOA estimates suggest that the change will save 800,000 premises from a tax hike and protect key sectors such as retail. We recognise that regular revaluations are important to maintain up-to-date rates bills, but such immense volatility is not, at this time, in the public interest. Postponing revaluation will provide businesses with a stable economic environment in which to deliver growth.